Beckett's Inc. — Interim / Quarterly Report 2020

Jun 1, 2020

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THE TINLEY BEVERAGE COMPANY INC.

Unaudited Condensed Interim Consolidated Financial Statements

(Expressed in Canadian Dollars)

For the Three Months Ended March 31, 2020 And 2019

NOTICE TO READER

Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the unaudited condensed interim consolidated financial statements, they must be accompanied by a notice indicating that the unaudited condensed interim consolidated financial statements have not been reviewed by an auditor.

The accompanying unaudited condensed interim consolidated financial statements of the Company have been prepared by and are the responsibility of the Company’s management.

The Company’s independent auditor has not performed a review of these unaudited condensed interim consolidated financial statements in accordance with the standards established by the Chartered Professional Accountants of Canada for a review of interim financial statements by an entity’s auditor.

THE TINLEY BEVERAGE COMPANY INC.

Unaudited Condensed Interim Consolidated Statements of Financial Position (Expressed in Canadian Dollars)

		As at March 31, 2020 As at December 31, 2019
	Assets Current Assets Cash and cash equivalents Short-term investments (Note 4) Accounts receivable (Note 5) Inventories (Note 6) Prepaid expenses	$ $ 1,298,886 2,614,342 943,152 998,955 216,424 64,269 719,405 599,085 233,423 206,291
	Total Current Assets	3,411,290 4,482,942
	Non-Current Assets Property and equipment (Note 7) Right-of-use assets (Note 9) Securitydeposits	7,548,778 7,149,179 2,158,294 2,131,879 150,680 137,946
	Total Non-Current Assets	9,857,752 9,419,004
	Total Assets	13,269,042 13,901,946
	Liabilities Current Liabilities Accounts payable and accrued liabilities (Note 8) Currentportion of leasepayable(Note 9)	989,292 871,237 685,267 604,154
	Total Current Liabilities	1,674,559 1,475,391
	Non-Current Liabilities Leasepayable(Note 9)	1,865,040 1,873,005
	Total Non-Current Liabilities	1,865,040 1,873,005
	Total Liabilities	3,539,599 3,348,396
	Shareholders’ Equity Share capital (Note 10) Reserve for share-based payments (Note 11) Reserve for warrants (Note 12) Contributed surplus Accumulated other comprehensive income Accumulated deficit	35,036,761 35,036,761 4,021,587 3,922,339 9,619,818 9,619,818 458,100 157,627 524,832 (212,810) (39,931,655) (37,970,185)
	Total Shareholders’ Equity	9,729,443 10,553,550
	Total Liabilities and Shareholders’ Equity	13,269,042 13,901,946
	Nature of operations (Note 1) Going concern (Note 2(b)) Contingencies (Note 17) Subsequent events (Note 18) Approved on behalf of the Board of Directors: “Jeffrey Maser” (signed) Director	“David Ellison” (signed) Director

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements

3

THE TINLEY BEVERAGE COMPANY INC.

Unaudited Condensed Interim Consolidated Statements of Loss and Comprehensive Loss For the three months ended March 31, 2020 and 2019 (Expressed in Canadian Dollars)

	2020	2019
	$	$
Sales	173,665	232
Cost ofgoods sold	(102,244)	(979)
Gross Profit	71,421	(747)
Operating Expenses
General and administration (Note 15)	1,242,713	869,983
Share-based payments (Notes 11 and 13)	399,721	463,745
Sales and marketing	283,762	166,527
Foreign exchange loss	50,339	176,338
Product development	1,400	49,538
	(1,977,935)	(1,726,131)
Net Loss before Other Income	(1,906,514)	(1,726,878)
Other Expense
Interest and other income	847	2,388
Fair market value changes to short-term investments(Note 4)	(55,803)	-
Net Loss	(1,961,470)	(1,724,490)
Other Comprehensive Loss
Gain(loss)on translation of foreign operations	737,642	(111,290)
Comprehensive Loss	(1,223,828)	(1,835,780)
Weighted Average Number of Common Shares Outstanding	110,681,641	91,087,034
Net Loss per Share
Basic and Diluted	(0.018)	(0.019)

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements

4

THE TINLEY BEVERAGE COMPANY INC.

Unaudited Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity For the three months ended March 31, 2020 and 2019 (Expressed in Canadian Dollars)

	Number of shares Amount Share-based payments Warrants Contributed surplus Accumulated deficit Accumulated other comprehensive income(loss) Total Share Capital Reserves
Balance, Janaury 1, 2019 Impact on adoption of IFRS 16 Balance, January 1, 2019 as restated Issuance of shares from private placements (Note 10) Share-based payments (Note 11) Exchange (loss) on translation of foreign operations Net loss for theperiod	# $ $ $ $ $ $ $ 90,827,034 27,611,385 2,696,343 6,872,702 - (30,444,737) (222,579) 6,513,114 - - - - - (133,326) (7,049) (140,375) 90,827,034 27,611,385 2,696,343 6,872,702 - (30,578,063) (229,628) 6,372,739 600,000 276,000 - - - - - 276,000 - - 463,745 - - - - 463,745 - - - - - - (130,763) (130,763) - - - - - (1,724,490) - (1,724,490)
Balance, March 31, 2019	91,427,034 27,887,385 3,160,088 6,872,702 - (32,302,553) (360,391) 5,257,231
Balance, Janaury 1, 2020 Share-based payments (Note 11) Forfeiture of options (Note 11) Exchange gain on translation of foreign operations Net loss for theperiod	110,681,641 35,036,761 3,922,339 9,619,818 157,627 (37,970,185) (212,810) 10,553,550 - - 399,721 - - - - 399,721 - - (300,473) - 300,473 - - - - - - - - - 737,642 737,642 - - - - - (1,961,470) - (1,961,470)
Balance, March 31, 2020	110,681,641 35,036,761 4,021,587 9,619,818 458,100 (39,931,655) 524,832 9,729,443

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements

5

THE TINLEY BEVERAGE COMPANY INC.

Unaudited Condensed Interim Consolidated Statements of Cash Flows For the three months ended March 31, 2020 and 2019 (Expressed in Canadian Dollars)

	2020	2019
	$	$
Operating Activities
Net loss for the period	(1,961,470)	(1,724,490)
Adjustments for non-cash items:
Share-based payments (Note 11)	399,721	463,745
Depreciation of property and equipment (Note 7)	246,839	2,129
Depreciation of right-of-use assets (Note 9)	161,528	154,518
Interest on lease obligations (Note 9)	69,396	86,839
Fair market value changes to short-term investments	55,803	4,427
Unrealized foreign currencytranslation loss	50,339	176,338
	(977,844)	(836,494)
Changes in non-cash working capital:
Accounts receivable (Note 5)	(152,155)	(1,057)
Inventories (Note 6)	(120,320)	(45,633)
Prepaid expenses	(27,132)	(172,664)
Accountspayable and accrued liabilities(Note 8)	67,716	9,582
Cash Flows used in Operating Activities	(1,209,735)	(1,046,266)
Investing Activities
Purchases of property and equipment (Note 7)	-	(8,686)
Advances made on facility construction	-	(284,123)
Proceeds on redemptions of short-term investments	-	498,115
Cash Flows provided by Investing Activities	-	205,306
Financing Activities
Proceeds from private placement (Note 10)	-	276,000
Leasepayments(Note 9)	(216,841)	(205,292)
Cash Flows (used in) provided by Financing Activities	(216,841)	70,708
Decrease in cash	(1,426,576)	(770,252)
Effects of foreign currency translation on cash	111,120	(56,064)
Cash and cash equivalents,beginningofperiod	2,614,342	3,633,275
Cash and cash equivalents, end of period	1,298,886	2,806,959

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements

6

THE TINLEY BEVERAGE COMPANY INC. Notes to the Unaudited Condensed Interim Consolidated Financial Statements For the three months ended March 31, 2020 and 2019 (Expressed in Canadian Dollars)

1. NATURE OF OPERATIONS

The Tinley Beverage Company Inc. (“Tinley”) was incorporated under the laws of the Province of Ontario, Canada by Articles of Incorporation dated October 26, 2007. Tinley, with its subsidiaries (see Note 2(d)) (together, the “Company”) manufacture a line of liquor-inspired, non-alcoholic, cannabis-infused beverages for use in California, United States (“US”). The Company also manufactures the “Tinley[TM] Tonics” and “Tinley[TM] ’27” line of products, which are available in retail locations in California and online throughout the US. The address of the Company’s registered office is 77 King Street West, Suite 2905, Toronto, Ontario, M5K 1H1, Canada. The Company’s common shares are listed on the Canadian Securities Exchange under the trading symbol “TNY” and on the OTCQX[®] under the trading symbol “TNYBF”.

2. BASIS OF PRESENTATION

(a) Statement of Compliance

The Company’s unaudited condensed interim consolidated financial statements, including comparatives, have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). These unaudited condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standards (“IAS”) 34 ‘Interim Financial Reporting’ . Accordingly, they do not include all of the information and disclosures required by IFRS for annual financial statements. For further information, see the Company’s audited consolidated financial statements including the notes thereto for the year ended December 31, 2019.

These unaudited condensed interim consolidated financial statements were reviewed, approved and authorized for issuance by the Board of Directors (the “Board”) of the Company on June 1, 2020.

(b) Going Concern

These unaudited condensed interim consolidated financial statements have been prepared with the assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. The application of the going concern basis is dependent upon the Company achieving profitable operations to generate sufficient cash flows to fund continuing operations, or, in the absence of adequate cash flows from operations, obtaining additional financing to support operations for the foreseeable future. It is not possible to predict whether future financing efforts will be successful or if the Company will attain profitable levels of operations.

For the three months ended March 31, 2020, the Company had a net loss of $1,961,470 and negative cash flow from operations of $1,209,735. The Company is dependent on its ability to obtain additional financing. These material uncertainties may cast significant doubt upon the Company’s ability to continue as a going concern. In assessing whether the going concern assumption was appropriate, management took into account all relevant information available about the future, which was at least, but not limited to, the 12-month period ending March 31, 2021. Management manages its cash flows and if necessary, will host additional private placements to raise necessary capital.

These unaudited condensed interim consolidated financial statements do not give effect to adjustments that would be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and liquidate its liabilities and commitments in other than the normal course of business and at amounts different from those in the accompanying unaudited condensed interim consolidated financial statements. Such adjustments could be material.

(c) Basis of Presentation

The unaudited condensed interim consolidated financial statements have been prepared in accordance with IFRS, on the historical cost basis except for certain financial instruments, which are measured at fair value. In addition, these unaudited condensed interim consolidated financial statements have been prepared using the accrual basis of accounting, except for cash flow information.

7

THE TINLEY BEVERAGE COMPANY INC. Notes to the Unaudited Condensed Interim Consolidated Financial Statements For the three months ended March 31, 2020 and 2019 (Expressed in Canadian Dollars)

2. BASIS OF PRESENTATION (continued)

(d) Basis of Consolidation

These unaudited condensed interim consolidated financial statements include the accounts of Tinley and its whollyowned subsidiaries: Hemplify Inc., Algonquin Springs Beverage Management LLC, Beckett Tonics California Inc. (formerly Boardwalk Beverages, Inc.), Lakewood Libations Inc. and Beckett’s Tonics Canada Inc., as well as certain legacy dormant entities: Bolivar Gold Corp., QBC Holdings Corp., Kulta Corp., San Lucas Gold Corp. and Colombian Mining Corp.

The unaudited condensed interim consolidated financial statements include all the assets, liabilities, revenues, expenses and cash flows of Tinley and its subsidiaries after eliminating inter-entity balances and transactions.

(e) Significant Accounting Judgments and Estimates

The preparation of these unaudited condensed interim consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, revenue and expenses. On an ongoing basis, management evaluates its judgments and estimates in relation to assets, liabilities, revenue and expenses. Management uses historical experience and various other factors it believes to be reasonable under the given circumstances as the basis for its judgments and estimates. Actual outcomes may differ from these estimates under different assumptions and conditions. These estimates are reviewed periodically, and adjustments are made to income as appropriate in the period they become known. Items for which actual results may differ materially from these estimates are described as follows:

Going concern

At the end of each reporting period, management exercises judgment in assessing the Company’s ability to continue as a going concern by reviewing its performance, resources and future obligations.

Fair value of financial assets and financial liabilities

Fair value of financial assets and financial liabilities on the unaudited condensed interim consolidated statements of financial position that cannot be derived from active markets, are determined using a variety of techniques including the use of valuation models. The inputs to these models are derived from observable market data where possible, but where observable market data are not available, judgment is required to establish fair values. Judgments include, but are not limited to, consideration of model inputs such as volatility, estimated life and discount rates.

Determination of cash generating units

For the purpose of impairment testing, assets that cannot be tested individually are grouped at the lowest levels for which there are largely independent cash inflows. The Company determines which groups of assets (each a “CashGenerating Unit or a “CGU”) can generate cash flows that are largely independent of other operations within the Company. Management exercises judgment in assessing where active markets exist including an analysis of the degree of autonomy each operation has in negotiating prices with customers. The Company has identified each product line as a separate CGU, based on the nature of the business and the assessment that the CGUs generate cash flows that are largely independent of the cash flows from other assets deployed in the Company.

Impairment

Long-lived assets including property and equipment, are reviewed for indicators of impairment at each reporting period or whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds its recoverable amount. The recoverable amount of an asset or a CGU is the higher of its fair value, less costs to sell, and its value in use. If the carrying amount of an asset exceeds its recoverable amount, an impairment charge is recognized immediately in profit or loss by the amount by which the carrying amount of the asset exceeds the recoverable amount.

8

THE TINLEY BEVERAGE COMPANY INC. Notes to the Unaudited Condensed Interim Consolidated Financial Statements For the three months ended March 31, 2020 and 2019 (Expressed in Canadian Dollars)

2. BASIS OF PRESENTATION (continued)

• (e) Significant Accounting Judgments and Estimates (continued)

Impairment (continued)

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the lesser of the revised estimate of recoverable amount, and the carrying amount that would have been recorded had no impairment loss been recognized previously.

Income taxes

Income taxes and tax exposures recognized in the consolidated financial statements reflect management’s best estimate of the outcome based on facts known at the reporting date. When the Company anticipates a future income tax payment based on its estimates, it recognizes a liability. The difference between the expected amount and the final tax outcome has an impact on current and deferred taxes when the Company becomes aware of this difference.

In addition, when the Company incurs losses that cannot be associated with current or past profits, it assesses the probability of taxable profits being available in the future based on its budgeted forecasts. These forecasts are adjusted to take account of certain non-taxable income and expenses and specific rules on the use of unused credits and tax losses. When the forecasts indicate the sufficient future taxable income will be available to deduct the temporary differences, a deferred tax asset is recognized for all deductible temporary differences.

Share-based payment transactions and warrants

The Company measures the cost of equity-settled transactions with officers and directors by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining and making assumptions about the most appropriate inputs to the valuation model including the expected life, volatility, dividend yield of the share option and forfeiture rate. Similar calculations are made in order to value warrants. Such judgments and assumptions are inherently uncertain. Changes in these assumptions will affect the fair value estimates.

Expected credit losses on financial assets

Determining an allowance for expected credit losses (“ECLs”) for all debt financial assets not held at fair value through profit or loss (“FVTPL”) requires management to make assumptions about the historical patterns for the probability of default, the timing of collection and the amount of incurred credit losses, which are adjusted based on management’s judgment about whether economic conditions and credit terms are such that actual losses may be higher or lower than what the historical patterns suggest.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies applied by the Company in these unaudited condensed interim consolidated financial statements are the same as those noted in the Company’s audited consolidated financial statements for the year ended December 31, 2019, unless otherwise noted below.

(a) Adoption of New Accounting Standards

The Company adopted the following new standard effective January 1, 2020:

IAS 1 ‘Presentation of Financial Statements’ and IAS 8 – ‘Accounting Policies, Changes in Accounting Estimates and Errors’ were amended in October 2018 to refine the definition of materiality and clarify its characteristics. The revised definition focuses on the idea that information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general-purpose financial statements make on the basis of those financial statements. The Company has assessed there was no significant impact on its unaudited condensed interim consolidated financial statements, as a result of the adoption of this standard.

9

THE TINLEY BEVERAGE COMPANY INC. Notes to the Unaudited Condensed Interim Consolidated Financial Statements For the three months ended March 31, 2020 and 2019 (Expressed in Canadian Dollars)

4. SHORT-TERM INVESTMENTS

As at March 31, 2020, the Company had invested in various fixed-income securities valued at $943,152 (December 31, 2019 – $998,955). These short-term investments were valued at FVTPL.

5. ACCOUNTS RECEIVABLE

COUNTS RECEIVABLE
	March 31,	December 31,
	2020	2019
	$	$
Sales taxes recoverable	23,458	41,146
Trade receivables	192,966	23,123
	216,424	64,269

6. INVENTORIES

As at March 31, 2020, inventories consisted of the following:

	March 31,	December 31,
	2020	2019
	$	$
Raw materials	416,807	384,903
Work in process	24,791	22,672
Finishedgoods	277,807	191,510
	719,405	599,085

For the three months ended March 31, 2020, inventories recognized as an expense in cost of good sold amounted to $102,244 (2019 – $979).

7. PROPERTY AND EQUIPMENT

	Plant	Leasehold
	equipment	improvements	Vehicle	Total
	$	$	$	$
Cost at:
December 31, 2019	5,953,786	1,461,817	170,255	7,585,858
Effects of foreign exchange on translation	541,258	134,949	15,717	691,924
March 31, 2020	6,495,044	1,596,766	185,972	8,277,782
Accumulated amortization at:
December 31, 2019	292,482	130,876	13,321	436,679
Amortization (Note 15)	153,929	84,095	8,815	246,839
Effect of foreign exchange on translation	27,076	16,696	1,714	45,486
March 31, 2020	473,487	231,667	23,850	729,004
Net book value:
December 31,2019	5,661,304	1,330,941	156,934	7,149,179
March 31, 2020	**6,021,557 **	1,365,099	162,122	7,548,778

10

THE TINLEY BEVERAGE COMPANY INC. Notes to the Unaudited Condensed Interim Consolidated Financial Statements For the three months ended March 31, 2020 and 2019 (Expressed in Canadian Dollars)

8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

	March 31,	December 31,
	2020	2019
	$	$
Trade payables	882,170	794,460
Accrued liabilities	107,122	76,777
	989,292	871,237

Accounts payables and accrued liabilities of the Company are principally comprised of amounts outstanding for trade purchases and other payables. The usual credit period taken for trade purchases is between 30 to 90 days.

A portion of the accounts payables includes completion payments to be made solely upon completion of the commissioning of the Long Beach facility.

The following is a maturity analysis of the trade and other payables:

	March 31,	December 31,
	2020	2019
	$	$
Less than 1 month	303,224	845,179
1 to 3 months	25,448	15,546
Over 3 months	660,620	10,512
	989,292	871,237

9. RIGHT-OF-USE ASSETS

On March 1, 2018, the Company entered into two lease agreements for the Long Beach facility in California, for beverage production and bottling facilities. The leases commenced on March 1, 2018, with a term of five years and three months, ending May 31, 2023, with an option to renew for two additional 36-month periods. The lease of the Long Beach facility had been recognized as a right-of-use asset (“RUA”) on adoption of IFRS 16 ‘ Leases’ on January 1, 2019.

The following is a summary of the RUA as at March 31, 2020:

	$
Cost at:
December 31, 2019	3,275,814
Effects of foreign exchange on translation	302,410
March 31, 2020	3,578,224
Accumulated amortization at:
December 31, 2019	1,143,935
Amortization (Note 15)	161,528
Effect of foreign exchange on translation	114,467
March 31, 2020	1,419,930
Net book value:
December 31,2019	2,131,879
March 31, 2020	2,158,294

11

THE TINLEY BEVERAGE COMPANY INC. Notes to the Unaudited Condensed Interim Consolidated Financial Statements For the three months ended March 31, 2020 and 2019 (Expressed in Canadian Dollars)

9. RIGHT-OF-USE ASSETS (continued)

The following table reflects the reconciliation of the lease payable on the Long Beach facility as at March 31, 2020:

	$
Lease liability, December 31, 2019	2,477,159
Lease payments	(216,841)
Interest on lease obligations	69,396
Effects of foreign exchange on translation	220,593
Total lease liability, March 31, 2020	**2,550,307 **
Current	685,267
Non-current	1,865,040
	2,550,307

10. SHARE CAPITAL

Authorized share capital

The Company is authorized to issue an unlimited number of common shares without par value.

Issued

Holders of the Company’s common shares are entitled to receive dividends which may be declared from time to time and are entitled to one vote per share at shareholder meetings of the Company.

	March 31,	December 31,
	2020	2019
	$	$
Issued: 110,681,641 common shares
(December 31,2019 – 110,681,641)	35,036,761	35,036,761

Included in the number of shares outstanding above, at no cost, are 3,000,000 common shares in escrow for the Chief Executive Officer (“CEO”) of the Company. The 3,000,000 common shares are to be issued at a price of $0.05 per share, subject to performance based on the Company meeting a sales target within five years of the agreement date October 29, 2015. Over these five years, the Company will release 1,500,000 consideration shares if sales exceed $1 million over any four consecutive quarters. An additional 1,500,000 consideration shares will be released if sales exceed $3 million over any four consecutive quarters. As at March 31, 2020, the shares are expected to be cancelled October 29, 2020.

Share capital transactions for the three months ended March 31, 2020

There are no share capital transactions in the three months ended March 31, 2020.

Share capital transactions for the three months ended March 31, 2019

On February 20, 2019, the Company closed a non-brokered private placement of 600,000 common shares at a price of $0.46 per share, for gross proceeds of $276,000.

11. RESERVE FOR SHARE-BASED PAYMENTS

The Company maintains a stock option plan to provide additional incentive to its officers, directors, employees, and consultants in their effort to conduct business on behalf of the Company. Options granted vest over a vesting period between two to five years. All options expire on the fifth anniversary from the date of grant unless otherwise specified.

12

THE TINLEY BEVERAGE COMPANY INC. Notes to the Unaudited Condensed Interim Consolidated Financial Statements For the three months ended March 31, 2020 and 2019 (Expressed in Canadian Dollars)

11. RESERVE FOR SHARE-BASED PAYMENTS (continued)

Options grants for the three months ended March 31, 2020

There were are no options granted in the three months ended March 31, 2020.

Option grants for the three months ended March 31, 2019

On January 22, 2019, the Company granted 500,000 stock options to an investor relations consulting firm, at an exercise price of $0.58. The options expire on January 22, 2021. The options vest over 18 months as follows: 120,000 options vested immediately on grant, 120,000 options vesting after six and 12 months, with the remaining 140,000 options vesting after 18 months from the date of grant. These options had since been cancelled.

The following is a summary of stock options activities for the three months ended March 31, 2020 and 2019:

The following is a summary of stock	options activities for the three months ended March 31, 2020 and 2019:	options activities for the three months ended March 31, 2020 and 2019:
	March 31, 2020 March 31,2019
	Weighted exerciseprice	Number of Weighted Number of options exerciseprice options
Outstanding, beginning of period Granted Expired Forfeited	$ 0.48 - - 0.58	# $ # 11,065,500 0.49 7,210,500 - 0.58 500,000 - 0.33 (75,000) (1,000,000) - -
Outstanding, end of period	0.46	10,065,500 0.50 7,635,500
Exercisable, end of period	0.42	4,705,917 0.36 3,309,553

The following table summarizes information of options outstanding as at March 31, 2020:

	Number of	Number of		Weighted
	options	options		average
Date of expiry	outstanding	exercisable	Exerciseprice	remaining life
	#	#	$	Years
December 23, 2020	910,500	910,500	0.11	0.73
January 27, 2021	25,000	25,000	0.11	0.83
April 10, 2021	300,000	200,000	0.70	1.03
August 4, 2021	350,000	350,000	0.08	1.35
November 3, 2021	600,000	600,000	0.44	1.59
December 2, 2021	100,000	-	0.50	1.67
December 2, 2021	100,000	-	0.60	1.67
December 2, 2021	100,000	-	0.70	1.67
July 12, 2022	600,000	600,000	0.35	2.28
November 22, 2022	350,000	300,000	0.68	2.65
April 20, 2023	100,000	40,000	0.87	3.05
May 11, 2023	150,000	87,500	0.72	3.11
August 13, 2023	300,000	150,000	0.79	3.37
November 30, 2023	2,300,000	958,333	0.58	3.67
December 11, 2023	100,000	41,667	0.58	3.70
December 14, 2023	250,000	104,167	0.58	3.71
September 4, 2024	525,000	87,500	0.56	4.43
November 14, 2024	200,000	50,000	0.37	4.63
December 23,2024	2,705,000	201,250	0.41	4.73
	10,065,500	4,705,917	0.46	3.26

13

THE TINLEY BEVERAGE COMPANY INC. Notes to the Unaudited Condensed Interim Consolidated Financial Statements For the three months ended March 31, 2020 and 2019 (Expressed in Canadian Dollars)

12. RESERVE FOR WARRANTS

The following summarizes the warrant activities for the three months ended March 31, 2020 and 2019:

	March 31, 2020 March 31,2019
	Number of warrants outstanding Fair value Number of warrants outstanding Fair value
Balance, beginning of period Exercised	# $ # $ 18,707,913 9,619,818 5,661,600 6,872,702 - - - -
Balance, end of period	18,707,913 9,619,818 5,661,600 6,872,702

The following table summarizes information of warrants outstanding as at March 31, 2020:

	Number of		Weighted
	warrants		average
Date of expiry	outstanding	Exerciseprice	remaining life
	#	$	Years
April 6, 2020	5,257,200	1.35	0.02
April 6, 2020	404,400	1.00	0.02
April 30, 2021	4,514,350	0.90	1.08
April 30, 2021	505,917	0.60	1.08
May 10, 2021	2,894,204	0.90	1.11
May 10, 2021	404,279	0.60	1.11
November 14, 2022	1,250,000	0.60	2.62
November 14, 2022	87,500	0.40	2.62
November 26, 2022	2,125,000	0.60	2.66
November 26, 2022	128,188	0.40	2.66
December 24, 2022	1,062,500	0.60	2.73
December 24,2022	74,375	0.40	2.73
	18,707,913	0.94	1.16

13. KEY MANAGEMENT COMPENSATION AND RELATED PARTY TRANSACTIONS

Key management compensation

Key management personnel are persons responsible for planning, directing and controlling activities of an entity, and include executives and non-executive directors, officers and any employees. Compensation provided to key management personnel for the three months ended March 31, 2020 and 2019 were as follows:

	2019	2018
	$	$
Short-term employee benefits,
including salaries and consulting fees	227,981	98,000
Share-based compensation	283,636	324,511
	511,617	422,511

• (i) During the three months March 31, 2020, the Company incurred consulting fee expenses with the CEO of $39,000 (2019 – $156,000) for services rendered. As at March 31, 2020, no balance (December 31, 2019 – $nil) was owed to the CEO for compensation on services rendered.

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THE TINLEY BEVERAGE COMPANY INC. Notes to the Unaudited Condensed Interim Consolidated Financial Statements For the three months ended March 31, 2020 and 2019 (Expressed in Canadian Dollars)

13. KEY MANAGEMENT COMPENSATION AND RELATED PARTY TRANSACTIONS (continued)

Key management compensation (continued)

• (ii) During the three months ended March 31, 2020, the Company incurred consulting fee expenses with the Chief Financial Officer (“CFO”) of $19,200 (2019 – $20,000) for services rendered. As at March 31, 2020, no balance (December 31, 2019 – $nil) was owed to the CFO for compensation on services rendered.

• (iii) During the three months ended March 31, 2020, the Company incurred wages expenses with the President – Western US of approximately $80,694 (2019 – $79,614) for services rendered. As at March 31, 2020, an amount of $10,239 (December 31, 2019 – $10,239) was owed to the President – Western US for an overpayment due to foreign exchange difference from the February 20, 2019 non-brokered private placement of 600,000 common shares at a price $0.46 per share, for gross proceeds of $276,000 (see Note 10).

• (iv) During the three months ended March 31, 2020, the Company incurred consulting fee expenses with the Acting Chief Operating Officer (“Acting COO”), who is also a director of the Company, of $50,087 (2019 – $nil) for services rendered. As at March 31, 2020, no balance (December 31, 2019 – $nil) was owed to the Acting COO for compensation on services rendered.

• (v) During the three months ended March 31, 2020, the Company incurred consulting fee expenses with directors considered to be part of key management $39,000 (2019 – $39,000) for services rendered. As at March 31, 2019, an amount of $6,500 (December 31, 2019 – $6,500) incurred to these directors was included in accounts payable and accrued liabilities.

Other related party transactions

• (vi) During the three months ended March 31, 2020, directors who are not part of key management received stockbased compensation of $69,393 (2019 – $69,366).

• (vii) During the three months ended March 31, 2020, $3,356 of legal fees (2019 – $nil) were incurred for services provided by a law firm in which a director of the Company is a partner.

14. CAPITAL RISK MANAGEMENT

When managing capital, the Company’s objective is to ensure it continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. Management adjusts the capital structure as necessary in order to support the beverage production.

The Board of the Company does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management team to sustain the future development of the business.

As at March 31, 2020, the Company considers its capital to be share capital, reserve for share-based payments, reserve for warrants, and reduced by accumulated deficit and accumulated other comprehensive income, totaling $9,729,443 (December 31, 2019 – $10,553,550).

Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable.

The Company is not subject to externally imposed capital requirements, and there were no changes in the Company’s approach to capital management for three months ended March 31, 2020 and the year ended December 31, 2019.

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THE TINLEY BEVERAGE COMPANY INC. Notes to the Unaudited Condensed Interim Consolidated Financial Statements For the three months ended March 31, 2020 and 2019 (Expressed in Canadian Dollars)

15. GENERAL AND ADMINISTRATION EXPENSES

The Company’s general and administration expenses incurred for the three months ended March 31, 2020 and 2019 are as follows:

as follows:
	2020	2019
	$	$
Depreciation of property and equipment	246,839	-
Payroll and salaries	219,011	122,825
Corporate costs and administration	169,724	133,538
Depreciation of RUA	161,528	156,647
Occupancy cost	150,365	80,699
Professional fees	106,486	139,035
Consulting and management fees	88,211	98,176
Interest on lease liabilities	69,396	86,839
Travel andpromotional	31,153	52,224
	1,242,713	869,983

16. FINANCIAL RISK MANAGEMENT

Fair value

The carrying amount of cash, trade receivables, shirt-term investments, trade and other payables and lease payable on the unaudited condensed interim consolidated statements of financial position approximate their fair value due to the relatively short-term maturity of these financial instruments.

Credit risk

Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. Cash is held with reputable Canadian and US chartered banks and in various liquid guaranteed interest-bearing instruments which are closely monitored by management. Management believes that the credit risk concentration with respect to financial instruments is minimal. The maximum exposure to credit risk at period-end is limited to the accounts receivable balance. No ECL has been recorded as at March 31, 2020.

Liquidity risk

Liquidity risk is the risk that the Company will not have sufficient cash resources to meet its financial obligations as they come due. The Company’s liquidity and operating results may be adversely affected if the Company’s access to the capital market is hindered, whether as a result of a downturn in stock market conditions generally or related to matters specific to the Company. The Company generates cash flow primarily from its financing activities.

As at March 31, 2020, the Company had a cash and cash equivalents balance of $1,298,886 (December 31, 2019 – $2,614,342), as well as liquid Short-term investments of $943,152 (December 31, 2019 – $998,955) to settle current liabilities of $1,674,559 (December 31, 2019 – $1,475,391). Management believes there is sufficient capital in order to meet short-term business obligations, after taking into consideration the cash flows requirements from operations and its cash position as at the reporting date. The undiscounted contractual maturity of all financial liabilities is as follows:

bilities is as follows:
	Total	Within 1year	1 to 3years	3 to 5years
	$	$	$	$
Accounts payable and accrued liabilities	989,292	-	-	-
Leasepayable	3,024,184	932,013	1,932,433	159,738
**Total **	4,013,476	932,013	1,932,433	159,738

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THE TINLEY BEVERAGE COMPANY INC. Notes to the Unaudited Condensed Interim Consolidated Financial Statements For the three months ended March 31, 2020 and 2019 (Expressed in Canadian Dollars)

16. FINANCIAL RISK MANAGEMENT (continued)

Market risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is subject to market risk on future cash flows through its shortterm investments indexed to S&P/TSX Composite. Had the value of the market increased or decreased by 1%, the return would change by approximately $10,000, respectively.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company does not hold any instruments subject to interest rate risk as at March 31, 2020.

Foreign currency risk

The Company operates in Canada and the US and is exposed to foreign exchange risk with respect to USD. The Company raises funds in Canadian dollars for its operations in the US. Foreign exchange risk arises on cash and trade payables from operations in the US. The Company believes that its results of operations and cash flows would be affected by a sudden change in foreign exchange rates. The Company mitigates this risk by maintaining sufficient USD-denominated cash to meet its USD-denominated obligations. As at March 31, 2020, the Company had the following assets and liabilities in USD:

	March 31,	December 31,
	2020	2019
	$	$
Cash	138,305	220,942
Trade receivables	136,016	17,804
Trade and otherpayables	(541,618)	(522,246)
**Net exposure to USD **	(267,297)	(283,500)

Had the value of the USD increased or decreased by 1%, the net loss and comprehensive loss would have increased or decreased by USD $2,673 (December 31, 2019 – USD $2,835), respectively, as a result of this exposure.

17. CONTINGENCIES

Although the possession, cultivation, and distribution of cannabis for recreational and medical use is permitted in the State of California, cannabis is a Schedule-I controlled substance and its use remains a violation of federal law in the US.

The Company’s operations are subject to a variety of local and state regulation. Failure to comply with one or more of those regulations could result in fines, restrictions on its operations, or losses of permits that could result in the Company ceasing operations in that specific state or local jurisdiction. While management of the Company believes that the Company is in compliance with applicable local and state regulations as at March 31, 2020, cannabis regulations continue to evolve and are subject to differing interpretations. As a result, the Company may be subject to regulatory fines, penalties, or restrictions in the future.

18. SUBSEQUENT EVENTS

On April 6, 2020, 5,257,000 warrants exercisable at $1.35 per unit and 404,400 warrants exercisable at $1.00 per unit, expired unexercised.

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